Investing strategy

[AZ2TX]

I recently made up my mind to leave my financial advisor and take care of my family's investments myself.

The main reason for leaving my broker is to reduce my costs ~ advisor fees & actively managed mutual fund fees ~ and take control of my investments.

Currently my wife and I have several retirement accounts ~ one 401k, one 403b, one SIMPLE, two ROTHS, and one taxable account.

I now look at all the accounts as one portfolio so after breaking down all the funds in these accounts I see that I need to make changes in my allocations.

I want to sell most or all the stocks he bought me and exchange them for ETF's in my taxable account to cut costs, increase tax efficiency and diversification and optimize my asset allocation.

To a lesser extent, I believe I have too many actively managed funds in my retirement accounts.

I need help in deciding if I should just fire sale all my actively managed funds (retirement accts) and individual stocks (taxable acct), essentially wiping my slate clean to invest in low cost index or ETF's in my accounts. Or do I keep my actively managed funds in my retirement accounts and only make changes in my taxable account with ETF's in order to get the AA I am looking for.

I would appreciate any suggestions

 

[plex]

There may be some restrictions on what you can sell or restrictions on how quickly you sell them, you will likely have to check into that.

 

[chinaco]

If you are not familiar with investing for retirement.... study.

IMO - You are making a good move that will reduce expenses and yield more money being saved.

Low cost index funds and/or ETFs are a good way to go.

 

[2B]

Welcome to the forum. You'll find lots of support here for moving into index funds. I have some Vanguard mutual funds and some ETF's. I originally thought that when I switched to index funds I would do it all with ETF's but I found that some of them are thinly traded and have fairly wide bid - ask spreads. SPY is one of my holdings. SPY is heavily traded but I am annoyed that after they go ex-dividend they don't actually pay for another 6 weeks.

I still have some ETF's in my taxable account but I've come to the conclusion that Vanguard index funds are a better way to go.

Congratulations on getting away from your FA. They frequently suck 3% or more from your portfolio every year. It's tough to get ahead with that kind of headwind.

 

[dex]

Your basic concept is sound but I would suggest you do the math on your current situation - holding vs selling - to take into account.
Taxes
Selling Costs
Buying Cost
Back end fees on mutual funds you sell
Projected returns

You might come to the conclusion that you will keep some investments, sell others and begin other investments (to adjust your asset allocation).

 

[walkinwood]

After the tech collapse in 2002, I sold all my individual stocks and moved to a diversified mutual fund portfolio following a pre-defined asset allocation. I did it in one move & harvested a lot of tax losses. I think index v/s active is less of an issue if you find low cost, well-diversified active funds from a reputable company. I used some index and some active funds. It worked for me at that time - your mileage will vary. Like the other person said - if you haven't already, do some studying. I find creating a spreadsheet and analysing all the implications of making the moves I am think off, helps avoid mistakes. Eg. What are the tax consequences. What are the available funds in each account - especially 401Ks. What are the transaction costs. All the best.

 

[harley]

Dex is right on the money.

I'm in a similar situation, having had my money with a family friend/CFA for the last 25 years. I'm now in the process of moving into self management with Vanguard funds and ETFs. But due to the tax issues mostly I'm converting slowly. We recently sold a home, so the money went into Vanguard, instead of giving it the FA. I know he's wondering what happened to it. I just rolled my 401k into a Vanguard IRA. I have an inherited annuity I have to liquidate by the end of next year that will also end up in Vanguard. So you see, as I get the option to do it, I take it. But if I were to do a fire sale, not only would I be selling low, I'd still take major tax hits.

So I recommend doing the math, and making the moves when they are right for you. Just live with the stuff you can't do anything about for now. Your chance will come for that too at some point.

 

[AZ2TX]

Fees in retirement account trading

Am I right to think there are no tax consequences trading in my retirement accounts (Roths,SIMPLE,401k)?

Only consequences for taking money out eary and the usual buying/selling fees/back end fees (if applicable).

 

[AZ2TX]

Index Funds vs ETF's in retirement accounts

I have read that Bond/REIT/High Dividend ETF's and actively managed funds are best kept in your retirement accounts.

Would you also include (and prefer) index funds in retirement accounts?

 

[ziggy29]

I have read that Bond/REIT/High Dividend ETF's and actively managed funds are best kept in your retirement accounts.

Would you also include (and prefer) index funds in retirement accounts?

Index funds are fine for retirement accounts, but if you have both taxable and tax-deferred/tax-free accounts for retirement investing, a stock index fund is probably better in the taxable account. Allocations to bonds and REITs should be in the tax-deferred accounts since they generate a high amount of income which is taxed at ordinary rates.

As long as dividends and LTCG are taxed at lower rates, it makes sense to hold stock index funds in taxable accounts.

 

[TromboneAl]

You might also consider just putting everything in a Vanguard target retirement fund (in which VG will handle rebalancing etc.). The main disadvantage is that you can't put the stock funds in taxable and the bond funds in retirement accounts.

 

[AZ2TX]

Front/Back end fees

I was told by my soon-to-be FA that I was not charged front end/back end fees with my funds in my retirement accounts (SIMPLE/ROTH IRAs)

Does this sound right?

Thanks,

 

[Darryl]

Certainly possible it depends on what you bought.

Wouldn't expect them to lie about it as you will quickly discover your back end charge (or lack of) when you move.

 

[willowbeezer]

great advice from the others. would suggest selectively selling those assets that matches tax losses against gains in taxable account. with the market drubbing recently, I wouldn't be surprised if you have tax losses, match those against the winners.

best of luck

 

[2B]

I was told by my soon-to-be FA that I was not charged front end/back end fees with my funds in my retirement accounts (SIMPLE/ROTH IRAs)

Does this sound right?

Thanks,

Maybe. There's know way of knowing without carefully reading the prospectus. Why would you want to have a FA? It's too easy to do it yourself and you'll save a bundle.

 

[tomintucson]

AZ2TX,

Looks like no one has yet responded to your question about tax consequences of exchanges (trades) in your tax-deferred or tax-exempt
(IRA, 401-k) accounts. These moves are not a taxable event (no tax consequences).

(Sorry for all the parentheses.)

Tom

 

[AZ2TX]

Funds performance graph

My game plan is to hold the stocks the FA bought me at least a year to help diminish tax gains and then sell (or keep). I lost big time on Fannie/Freddie he bought me so those losses should help offset any gains, albeit small, I would gain on those individual stocks next year.

I am determined to sell a lot of the actively managed funds the FA put me in as I re-allocate my accounts. However, looking at the performance of some of these funds they are much better than the indexes they perform with (or so it appears).

I am sickened by the expense rations,front/back end fees, 12b-1's, etc. of the actives. But should these performance graphs (the ones that say what $10,000 would grow to over a period of time) on each active mutual fund I research deter me from geting out and into low cost index/ETF's?

I know they have a higher expenses but it 'seems' by the graphs that they are outperforming the indexes and usually their styles by more than what the expenses are.

Any thoughts on that?

 

[REWahoo]

I know they have a higher expenses but it 'seems' by the graphs that they are outperforming the indexes and usually their styles by more than what the expenses are.

Any thoughts on that?

Post a list of the funds and you'll probably get better response to that question.

 

[AZ2TX]

List of funds

ROTH
ARTMX
JAGIX
PCVBX
TDF
PHLAX
PUFBX

SIMPLE
CVGRX
RYOTX
CIVIX
PTSCX
FLMVX
CTCAX
DODFX
FLSAX –Fidelity Advantage Leverage Co. Stock
KNPAX
JPIVX
VWNFX

TAXABLE
NYVCX

 

[REWahoo]

I'm only familiar with one of the funds you listed:

DODFX - Dodge & Cox International. This has been a good, relatively low cost (0.65%) large value international fund since its introduction in 2001. I have ~15% of my nest egg in this fund and use it to hold most of the international slice of my allocation. As always, past performance doesn't necessarily mean anything when it comes to the future.

Maybe others will respond on the remainder of your list. (BTW, that's way too many funds in my opinion...).

 

[W2R]

VWNFX is Vanguard's Windsor II.

Windsor is a large cap value fund, a little heavy on the financials. It is a good fund, though taking a beating lately (down 21.57% YTD). More info here: https://personal.vanguard.com/us/JS...?tab=0&FundId=0073&FundIntExt=INT#hist::tab=0